As the Information technology sector faces pressure on account of global growth concerns, rising automation and growing stress on profit margins of companies over the last three years, the mutual fund industry has shifted its focus away from the sector and significantly reduced its holding in software companies from 11.92 per cent of its total equity investment in March 2014, to 7.39 per cent in March 2017.
Other sectors such as oil, pharmaceuticals, minerals/mines and telecom services also witnessed a reduction in MF exposure (in per cent terms) over the last three years as the companies within the sectors got impacted by issues such as decline in crude oil prices, regulatory concerns and price war within the industry, among others.
However, the beneficiaries of the rising inflow of domestic money into equity schemes (Rs 1.95 lakh crore in equity schemes in three years) and resultant incremental investment by mutual funds were companies operating in sectors such as finance, automobiles, banks, consumer durables and chemicals, among others. Data accessed from capital market regulator — Securities and Exchange Board of India — reveals that over the last three years, mutual fund companies have significantly increased their exposure to these sectors.
The decline in MF exposure to IT, oil, pharma and telecom sectors came even as the mutual fund industry witnessed its assets under management triple in the three-year period. While companies across IT, pharma, mining and telecom sectors too witnessed an increase in investment by mutual funds in absolute terms, their overall share declined as fund houses gave preference to companies across other sectors. The oil sector, however, saw a decline in MF exposure both in AUM and in percentage terms.
While MF industry exposure to equities rose three times from Rs 2.03 lakh crore in March 2014 to Rs 6.12 lakh crore in March 2017, the exposure to IT sector went up by 1.9 times from Rs 24,315 crore to Rs 45,259 crore during that period and the exposure to IT sector came down from 11.92 per cent to 7.4 per cent. The oil sector witnessed a sharp decline in MF interest and the investment exposure of MFs came down from 2.83 per cent in March 2014 to 0.9 per cent in March 2017. For pharma sector, the MF exposure came down from 7.88 per cent to 6.83 per cent in the same period.
Some of the big gainers of MF investment over the three years were finance, automobile and banking sector. The MF exposure of companies in finance sector rose from 4.92 per cent (Rs 10,025 crore) in March 2014 to 7.65 per cent (46,798 crore) in March 2017. In the same period the MF investment share in auto sector increased from 5 per cent to 6.26 per cent. MF exposure to banks rose from 19.76 per cent to 20.68 per cent over the three year period.
A closer look at the data shows that several sectors that did not have notable investment by mutual funds in 2014 saw manifold increase in their investment over the last three years. The healthcare services industry that had total MF investment of Rs 158 crore by mutual funds in 2014, saw a 13-fold jump in MF investment within the sector to Rs 2,115 crore as of March 2017. The investment exposure to the hospitality industry jumped 12.5 times from Rs 240 crore to Rs 2,997 crore. Investment into non-ferrous metals sector rose more than 8 times from Rs 756 crore to Rs 6,243 crore.